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Why Bond Bankers Are Fretting

Central banks' easy-money policies are anything but easy money for the biggest banks.

With trading profits dwindling, more dealers than ever are fighting for assignments managing U.S. corporate-bond sales, one of the few bright spots in fixed income. Companies from the most-creditworthy to the most-indebted have been selling trillions of dollars of debt, locking in record-low borrowing costs ahead of the anticipated rise in interest rates.

The increased competition is bad for JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., and Barclays Plc because the top five banks won the smallest share of the assignments this year for any comparable timeframe, according to data compiled by Bloomberg. A record 144 underwriters for the period have split an estimated $4.2 billion of fees on U.S. sales, the data show.

“One business is challenged, so people have become aggressive in other businesses,” said Alison Williams, a senior financials analyst with Bloomberg Industries.

While the biggest firms are still dominant, they’re losing their hold on a reliable profit center in an increasingly bleak fixed-income world. The five most-active corporate-debt underwriters this year landed 47 percent of the business, the smallest share on record. That’s down from 59 percent of the assignments for all of 2009.

Smaller firms see an opportunity to break into the business as Wall Street’s behemoths unload inventories of riskier securities in the face of higher capital requirements and limits imposed by the U.S. Dodd-Frank Act’s Volcker Rule on the amount of their own money they can use to trade.

Royal Bank of Canada has climbed to 11th most-active underwriter of corporate bonds in the U.S., from 14th place in the period four years earlier, Bloomberg data show. U.S. Bancorp and a unit of SunTrust Banks Inc. are in the top 20 managers of the debt sales, from ranking 22nd and 28th, respectively, in 2010.

To make matters worse, fees on the $754 billion of corporate bonds sold in the U.S. this year are coming down, Bloomberg data show. Those tied to junk-bond issuances—more lucrative than underwriting higher-rated debt—have shrunk to the lowest on record.

Debt underwriting fees among the nine biggest banks were 5.8 percent lower in the first three months of 2014 compared with the same period last year, according to data compiled by Bloomberg Industries. The slump in fees outpaced a 2.6 percent drop in the volume of global corporate bond sales.

Those easy-money policies implemented by central banks around the world increasingly look like anything but easy money for the biggest banks.

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